Components inventory correction hits Avnet during tough Q3

Distributor's EMEA sales suffer double-digit decline but profitability increases for IT solutions unit

Distribution giant Avnet rode out a tough fiscal third quarter, with its components and enterprise IT solutions businesses both suffering double-digit revenue declines in EMEA.

For the three months to the end of March, the Phoenix-based firm saw worldwide revenue shrink 5.9 per cent year on year to about $6.3bn (£3.9bn). GAAP operating profit fell 10 per cent to $216.8m.

The drop in sales was primarily attributed to the distributor's performance in the EMEA region, where sales in Avnet's components business, dubbed Electronics Marketing, declined 17.8 per cent to $1.1bn. EMEA revenue in the enterprise IT-focused Technology Solutions arm fell 12.1 per cent to $744.8m.

But Avnet indicated that EMEA operating profit for the Technology Solutions unit grew 69 per cent, helping worldwide operational margins climb from 2.1 to 2.7 per cent year on year. This was offset, however, by a decline in Electronics Marketing operating margins from 5.7 to 5.2 per cent.

Avnet chief executive Rick Hamada claimed components sales have been affected this fiscal year by the need to flush out excess inventory across the industry.

"Although the current economic environment and rate of recovery varies in each region, our team was able to deliver results for our third quarter that were in line with our expectations," he added. "To put our results in perspective, a year ago we were near the peak of the V-shaped recovery that helped drive strong levels of profitability at Electronics Marketing and Avnet in total.

"The subsequent supply chain inventory correction, which has led to negative organic growth at EM in the first three quarters of this fiscal year, appears to be nearing an end as EM's sequential revenue growth has returned to a more normalised seasonal level and its book-to-bill ratio finished at parity for the quarter."

Sales for Avnet's closing fiscal quarter are forecast to be in the region of $6.3bn to $6.9bn.